Understanding the Effects of Workfare Policies on Child Human Capital

Workfare policies might have negative effects on children’s development by inducing parents to spend less time at home. I study the mechanisms by which workfare policies affect children using the workfare experiment “New Hope” (Milwaukee, 1994-1997). The program randomly assigned an earnings subsidy and a child care subsidy subject to a full-time work requirement. For families with young children, the program had sizable, positive effects on child academic performance. Counterfactual experiments from a dynamic-discrete choice model indicate that most of the effect of New Hope on child human capital is explained because parents enrolled their children in center-based child care.